tax increase

The plan, one supposes, was to play some politics with a speech and put the GOP on the defensive. Then, submit the job’s package and finally get what the President has been after for three years. A tax increase on the rich. In fact, as it turns out, that is the entire funding mechanism for his $400 billion spending spree – to be collected later, of course. No reason to change the modus operandi of this administration and actually pay for a spending program now with cuts in other areas.

But it appears his plan hit an unexpected problem. Instead of being able to lay his blame at the doorstep of the Republican House and point at them on the campaign trail as the people who’ve caused all this misery and turmoil (yeah, I know, I’m just thinking about how he’d present it … and I’m being a bit sarcastic to boot), he’ll have to include his own party in the mix. Seems they’re no more happy about the proposal than the Republicans:

President Obama anticipated Republican resistance to his jobs program, but he is now meeting increasing pushback from his own party. Many Congressional Democrats, smarting from the fallout over the 2009 stimulus bill, say there is little chance they will be able to support the bill as a single entity, citing an array of elements they cannot abide. ‘I think the American people are very skeptical of big pieces of legislation,’ Senator Bob Casey, a Democrat from Pennsylvania, said in an interview Wednesday, joining a growing chorus of Democrats who prefer an à la carte version of the bill despite White House resistance to that approach. ‘For that reason alone I think we should break it up.’”

Harry Truman he ain’t. So there goes the claim from Obama that the Republicans are nasty old obstructionists who are only interested in protecting the “rich”(all those “rich” folks who make $200,000 to $250,000 a year. Obama has decided that’s enough). He’ll now have to include Democrats:

Republicans have focused their attack on the tax increases that would help pay for the spending components of the bill. But Democrats, as is their wont, are divided over their objections, which stem from Mr. Obama’s sinking popularity in polls, parochial concerns and the party’s chronic inability to unite around a legislative initiative, even in the face of Republican opposition. Some are unhappy about the specific types of companies, particularly the oil industry, that would lose tax benefits. . . . A small but vocal group dislikes the payroll tax cuts for employees and small businesses. . . . There are also Democrats, some of them senators up for election in 2012, who oppose the bill simply for its mental connection to the stimulus bill, which laid at least part of the foundation for the Republican takeover of the House in 2010.”

It’s that bad taste in their mouth that just won’t go away and they’re not at all inclined to refresh it. After all, they have an election to wage next year and things aren’t looking so hot right now. Nails, coffin, some assembly required.

It is also telling that the Presidential ploy is so obvious while also being so out of step with the political reality of the situation. Is Obama playing X-box at night instead of keeping abreast of the political situation in the country? Or does he really think everyone else is so stupid they just won’t pick up on these rather amateurish ploys of his?

Speaking to NBC’s Chuck Todd on MSNBC this morning, Joe Scarborough observed, “Their problem is though of course, Chuck, this morning, the Democrats are the ones that are in open revolt . . . .” Todd replied, “That’s right. It’s the Democrats.”

James Pethokoukis provides the reasons. As you’ll note, economically, they’re not rocket science, but they certainly are something that the left seems to want to ignore in focusing its solutions to the debt problem on getting tax increases included.

One – the economy will not tolerate a tax increase at this time. It is simply not in the shape in which it can shrug a tax increase off. And it certainly won’t matter if the tax is only on “the rich”. As someone once asked, “ever get a job from a poor man?” The increase in revenues generated by taxing the rich (or anyone for that matter) will not offset the loss it will generate in hiring or expansion of business. Pethokoukis points out that the economy is in incredibly fragile shape at the moment. Thus:

…[T]he economic recovery is sputtering with stall speed fast approaching. Now would be a terrible time to penalize investors and business, both big and small, with new taxes.

Common sense 101.

Two – Tax revenue isn’t our problem when it comes to debt. Spending is the problem. Yet as I pointed out Saturday, the solution the left seems to prefer involves nothing but tax revenue increases or tax increases. What they’re less inclined to do is focus on the spending problem and make appropriate spending cuts. “Greek heroin” is the reason. Take a look at this:

By 2021, the the CBO says, the annual budget deficit would be 7.5 percent of GDP and by 2035 a truly monstrous 15.5 percent. Throughout this period, tax revenue would be 18.4 percent, right around the historical average. But spending would be 25.9 percent in 2021, 33.9 percent in 2035 vs. an average of roughly 21 percent. It’s spending that’s way out of whack, not revenue.

That means that if the so-called “Bush tax cuts” (they’re just the current tax rates) are left in place, that’s where we find ourselves in 2035. As Pethokoukis proves, it isn’t tax revenue that’s the problem. Unless you believe that it’s the government’s money in the first place and they have every right to determine how much you get to keep.

Let’s go with that. Let’s see what happens if the left gets its way:

But let’s say all the Bush tax cuts were left to expire, as was AMT relief. Assuming no economic fallout, according to the CBO, revenue would be 23.2 percent of GDP by 2035. Three problems here: a) even with all those tax increases, the annual budget deficit would still be nearly an unsustainable 10.7 percent of GDP in 2035; b) the U.S. tax code has never generated that level of revenue and almost certainly can’t without a value-added tax; and c) there would be tremendous economic fallout. Axing all the Bush tax cuts would chop three percentage points off GDP growth, according to Goldman Sachs, certainly sending America back into recession. Tax revenue would again plummet.

Spending, not tax revenue, is the obvious problem.

Common sense 101.

Three – boosting economic growth is the fastest way to increasing tax revenues. However there’s one problem to that as far as an intrusive government is concerned. It has to get out of the way.

Pethokoukis and I part ways a bit here as he endorses a consumption tax vs. an income tax and further endorses raising the revenue percentage of government’s part of the GDP to 19%. Can’t go there with him even if Rep. Paul Ryan’s plan is similar. I’m not so much against a consumption tax (it at least taxes what you consume thereby not penalizing you for what you save, nor do you get double taxed assuming the income tax goes away) but I am against such an increase in the tax percentage. I think very aggressive cuts in government spending plus fairly massive deregulation (and the obvious cuts in compliance spending by businesses that would save) would yield a fast recovering and growing economy. Granting an increase in the historic percentage of GDP that government has taken opens a door of precedence I don’t want opened. It is time government lived within its means and understood that that economic growth takes precedence over government growth – every time.

It is spending – uncontrolled and wasteful spending – that is our problem. Not tax revenue. Government must be cut and cut fairly severely. That’s something the heroin addicts don’t want to hear. So they spin out solutions which always end up in one place – “the problem is revenue, we need more revenue”.

No. They don’t.

And the GOP, if it is to have any credibility with voters come 2012, had best not cave on this point.

Democrats in the Illinois Legislature on Wednesday approved a 66 percent income-tax increase in a desperate and politically risky effort to end the state’s crippling budget crisis.

The increase now goes to Democratic Gov. Pat Quinn, who supports the plan to temporarily raise the personal tax rate to 5 percent, a two-thirds increase from the current 3 percent rate. Corporate taxes also would climb as part of the effort to close a budget hole that could hit $15 billion this year.

Wonderful. If I lived there, I’d certainly be considering a new state – border states must be happy as they can be over this. And, of course, same with corporations. But as grim as that is, here’s the laugh line:

It will be coupled with strict 2 percent limits on spending growth. If officials violate those limits, the tax increase will automatically be canceled. The plan’s supporters warned that rising pension and health care costs probably will eat up all the spending allowed by the caps, forcing cuts in other areas of government.

Question: why, in an era of little to no inflation is there any spending growth when you have a budget shortfall like that in IL? The state shouldn’t be increasing spending by even a single penny, for heaven sake.

In fact, it would make much more sense to keep it flat or, better yet, have it actual cuts (not “cut” in the sense politicians usually use the word) in spending by 2%? Pensions? Cut ‘em. Health care costs? Cut ‘em? Government employees? Let ‘em go or furlough them. You politicians got the state in the mess it’s in, now live with the consequences and face the music.

The state got itself in this mess by over promising and over committing. Now the state should work itself out of the mess without again tapping taxpayers. Instead, it chooses to take more money from its citizens to pay for its profligacy. It penalizes them for something the state’s politicians willingly, irresponsibly and thoughtlessly did.

And I’m sure the jobs picture is wonderful in IL. It must be if the state can afford to throw some higher taxation at corporations there.

Because, you see, saying “no” to government employee unions and the like is much harder than slapping higher taxes on the masses and business.

However, all things considered, most should know that if you want to live in a blue state, these sorts of things are what you’re most likely going to have to suffer.

The increase means an Illinois resident who now owes $1,000 in state income taxes will pay $1,666 at the new rate. After four years, the rate drops to 4 percent and that same taxpayer will then owe $1,333.

Any bets that before the 4 years are up the new rate becomes permanent?

"Based on this particular legislation the only businesses that will benefit are the moving companies that will be helping many of my members move out of this particular state," said Gregory Baise, head of the Illinois Manufacturers’ Association.

Timing is everything, isn’t it? So much for hiring that new employee on the margin. He or she now has been replaced – before they were ever hired – with new taxes.

The usual Democrat answer?

Democrats countered that even with the increase, Illinois’ tax rate will be lower than in many neighboring states — Iowa’s top rate is 8.98 percent, Wisconsin’s is 7.75 percent. They also maintain that without more money, state government may not be able to pay employees by the end of the year. Major government services might have to be halted, they warn, and groups waiting for state payments will go under.

That’s right – scare tactics and the usual “our taxes still aren’t as high as others”. Well here’s a clue IL Dems – nothing says they have to move to “neighboring states” does it?